Simplify land acquisition for pvt sector in 2011 budget : CCC

Recommendations by the Ceylon Chamber of Commerce (CCC) submitted to the government to be considered for the 2011 national budget spanned areas such as facilitating investment, export promotion, public sector reforms, financial markets development and tax policy, according to CCC Senior Economist Gayathri Ganaruwan.

Specifically, she indicated that land was one of the main constraints to private sector investment as the government was the largest landowner in Sri Lanka with holdings of 80% of all land and land reforms would take too long to accomplish. She said the CCC has asked the government to simplify the land acquisition process.

Another area the CCC asked the government to address was the sanctity of agreements, particularly those between private sector organisations and government bodies, which have on occasion been nullified at the expense of the private sector. The CCC also sought assurances that this would no longer happen.

Also proposed was a number of tax reforms including lowering the number of taxes, restricting ad hoc taxes and regular changes to tax policies, a lower tax rate, simplifying tax system, no retrospective taxation, and aligning provincial taxes with national policy. She also noted that many taxes currently applicable cost more, with regards to administration expenses, etc, to implement than they earned in terms of revenues.

Ms Ganaruwan’s remarks were made at a Pre-Budget public seminar or “Sanvada” organised by the Pathfinder Foundation in conjunction with the CCC and the Sri Lanka Business Development Centre. Also remarking at the event, CCC Chairman Dr. Anura Ekanayake noted that a better business survey had ranked Sri Lanka 102 out of 183 countries last year and 105 this year. He also noted that the country was ranked 166 this year in terms of taxation. He also suggested there was a question as to whether investment would increase as quickly as needed.

This is because many companies are not in a position to allocate resources to investment as they were still feeling the repercussions of last year’s global financial crisis. Meanwhile, the banking sector was “flush” with funds because they had excess liquidity with no viable projects to invest in. However, he did note that there was increasing, incremental growth in credit to the private sector in the three months ending July of this year but this had not yet returned to pre-crisis rates of 2008.

He also noted that the 8% to 10% growth needed to meet the requirements of Mahinda Chinthana could only be achieved with the help of the private sector because otherwise the national budget deficit would grow to unsustainable levels. He also recommended that the way ahead for the government was not unsustainable public investment but rather creating a conducive climate for sharply increasing private investment.

Meanwhile, University of Colombo Professor of Economics Dr. Sirimal Abeyratne noted that two thirds of government revenues went towards interest payments on loans, including foreign loans, and payments for transfers and subsidies. In addition, investment were continuing in traditional economic areas that were a drain on revenues and which did not have the potential for growth. He also noted that there were 137 public enterprises which heavily relied on the budget for their expenses, did not pay dividends, maintained a heavy debt burden with state banks and use of state resources such as water, power, etc. without paying bills.

He also revealed that these enterprises were identified in 2008 but nothing had been done about them to date. ding to telecommunications researcher Chanuka Wattegama, the government should nurture rural business process outsourcing ventures, which while not lucrative for private investors, were the “garment factories of our time”. He also noted benefits of these ventures including no transportation needed, infrastructure being available and ability to provide jobs for both men and women and the fact that these ventures, once established, would garner higher wages for workers as they would be knowledge workers.

Additionally, Mr. Wattegama also noted that while the local mobile providers indicated there were as many as 17 million users in this segment, a number inflated by users using multiple SIMs. He revealed that in fact the accurate number of subscribers was closer to 13 million, with the sector soon to reach saturation. He also noted that last year mobile providers had been privy to a 25% drop in revenue per minute while growth in volume dropped from 22.3% to 11.7%. He also indicated that there was up to 27% or possibly even more in taxes absorbed by users of mobile services. This was separate to taxes paid by telcos to the government.

He also suggested that there were many discrepancies including taxes charged on taxes; irrational taxes such as a long defunct environmental tax which was being pocketed without reason; and taxes not being pro poor, because a lot of the earnings came from the prepaid segment (85%) which historically catered to low income groups. He also noted that much of the time tax revenue depends on marketing strategies with promotions such as free minutes taking away from government tax revenues.